Finance and Economic

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1. Why did Amey run out of cash in 2002?

* Amey shares have been under pressure since April when the company adopted new accountancy practices, by which it writes off bid costs (particularly related to PFI) as they are incurred. This turned Amy’s forecast profit into a heavy loss and raised questions about the way other companies in the sector account for costs. * Amey continued spending on more and many new contractors, and on diversification into technology provision, such a modest initiative was doomed to failure. * Amey is a one third partner in the Tube Lines consortium set to update three tube lines in an investment program me worth £13bn over 15 years and was losing £1m for every month the contract was delayed .and as Amey holding 33.3 per cent stake in tube lines, Amey joint venture partner were required to use their cash to close the deal on Amey’s behalf. * The cost of bidding for public sectors PFI contracts was not fully understood. * The diversification were similar resources intensive in terms of cash and in terms of specialist capabilities which Amey had no experiences of, and involved a level of business complexity that Amey was unfamiliar with.

2. In retrospect, would you consider Ferrovial’s acquisition of Amey to have been successful (use the three success criteria of Suitability, Acceptability and Feasibility to review this)?

* Suitability: One of the prime purposes of strategic analysis is to gain a clear understanding of the organization and the environment in which it is operating. Does the strategy exploit the company strengths?

Yes, because it helping to establish the company in new growth sectors of the market. And ferrrovial servicios has grown significantly since the acquisition. How far does the strategy overcome the difficulties identified in the strategic analysis? The Acquisition help to improve the organization’s competitive standing, and resolve the company’s liquidity problems especially after...
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